Oil above $33, at pre-Iraq war levels

SAN FRANCISCO (CBS.MW) -- Oil futures topped $33 a barrel Tuesday, rallying 5 percent to close at a level the market hasn't seen since before the U.S.-led war in Iraq began.

The "growing risk premium" in petroleum prices comes on the heels of mounting geopolitical tensions, OPEC's aggressive enforcement of its production policies, as well as uncertainty about demand during the winter heating season, said Thorsten Fischer, an economist at Economy.com.

The December crude contract rose $1.55 to close at $33.28 per barrel on the New York Mercantile Exchange after reaching an intraday high of $33.35.

Futures prices haven't traded at these levels since mid-March, before the U.S. and its allies waged war in Iraq. That month, futures prices rose to highs near $38 a barrel.

Prices for petroleum-products climbed 5 percent, as well. December heating oil climbed 3.98 cents to close at 89.92 cents a gallon, and December unleaded gasoline closed at 91.57 cents a gallon, up 4.57 cents.

Terrorist attacks in Saudi Arabia, Iraq and Turkey in the past several days had already provided support for the oil markets in recent days, with traders concerned that the events will affect oil output from the Middle East. See CBS News.

Further fueling concerns over global supplies, Venezuela has indicated Tuesday that OPEC will discuss a possible cut in production quotas when its meets next month.

Todd Hultman, president of Dailyfutures.com, a commodity information provider said the notion of another production cut "sounds outrageous," but "OPEC has taken on an increasingly hostile tone lately," he said.

"The bottom line is that anything is possible, and the U.S. market is vulnerable to shortages of heating oil this winter," he said.

Scaring the bears

In the long run, upbeat economic data, including Monday's reported rise in U.S. business inventories, are also "very bullish for energy demand and energy prices," said Phil Flynn, a senior analyst at Alaron Trading in Chicago. See related story.

And energy futures in general, may find more support from continued weakness in the dollar, said Michael Armbruster, an analyst at Altavest Worldwide Trading, noting that the dollar index is near a six-year low. See Currencies Report.

Added to the market's volatility, December crude futures contracts expire at the end of Thursday's session.

With all these factors in their favor, crude futures are more "vulnerable to a price spike," said Flynn.

And with a close above the $33 level, bearish traders could be "throwing in the towel," he said.

Supply forecasts vary

Flynn points out that "supplies are above last year's, but only by a little bit."

Expectations for upcoming domestic petroleum supply data from the Energy Department and American Petroleum Institute were mixed. The groups will release their reports on Wednesday morning.

Tim Evans, a senior analyst at IFR Pegasus in New York is looking for a 1 million- to 3 million-barrel fall in crude stocks for the week ended Nov. 14, but John Kilduff, an analyst at Fimat USA expects a 2 million-barrel climb.

Evans bets on a fall of 500,000 barrels to 1.5 million barrels for distillate stocks, which include heating oil, while Kilduff expects a decline near the middle of that range, on the order of 1.25 million barrels.

Government data released last week revealed an 800,000-barrel fall in U.S. crude inventories for the week ended Nov. 7 to total inventories of 291.1 million barrels. Weekly oil-products data were mixed, with gasoline stocks up and distillate inventories down. See full story.

Natural gas moves up

After falling nearly 7 percent in the previous session, natural-gas futures found support from the sharp rise in oil futures prices and closed with a 2 percent gain

Natural gas for December delivery rose by 10.1 cents to close at $4.865 per million British thermal units on the New York Mercantile Exchange.

"Near term, traders are looking at the weather to gauge demand," said Alaron's Flynn.

Supplies of natural gas in the U.S. have been climbing, but that could soon change.

Most analysts expect this Thursday's update from the Energy Department on natural-gas supplies, which covers data for the week ended Nov. to 14, to show a decline in stocks, but estimates call for a draw of 30 billion to a build of as high as 15 billion cubic feet, said Fimat's Kilduff, who's looking for a climb of 8 billion.

A year ago, stocks fell by 1 billion cubic feet.

The most recent report from the Energy Department, released last week, showed a buildup of 32 billion cubic feet for the week ended Nov. 7.

Total stocks were at 3.187 trillion cubic feet, 90 billion cubic feet higher than their year-ago level and 121 billion cubic feet higher compared to the five-year average, the government data showed.

Energy equities closed mainly lower in Tuesday's action, as reflected by a decline in the Philadelphia Oil Service Index
OSX, +0.47%See Energy Stocks.

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